Amoche v. Guarantee Trust Life Ins. Co.

• Decision Date: 13 February 2009
• Docket Number: No. 08-2094.,08-2094.
• Citation: 556 F.3d 41
• Parties: Frederick AMOCHE; Jon Valliere; Diane Dauphinais, for themselves and on behalf of all others similarly situated, Plaintiffs, Appellees, v. GUARANTEE TRUST LIFE INSURANCE COMPANY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

556 F.3d 41

Frederick AMOCHE; Jon Valliere; Diane Dauphinais, for themselves and on behalf of all others similarly situated, Plaintiffs, Appellees, v. GUARANTEE TRUST LIFE INSURANCE COMPANY, Defendant, Appellant.

No. 08-2094.

United States Court of Appeals, First Circuit.

Heard January 6, 2009.

Decided February 13, 2009.

Francis A. Citera with whom Christopher Cole, Sheehan, Phinney, Bass & Green, P.A., Kimberly M. DeShano, and Greenberg Traurig, LLP were on brief for appellant.

Edward K. O'Brien with whom O'Brien Law Firm, P.C., Charles G. Douglas III, Jason R.L. Major, and Douglas, Leonard & Garvey, P.C. were on brief for appellees.

Before LYNCH, Chief Judge, SELYA and SILER,^* Circuit Judges.

LYNCH, Chief Judge.

The Class Action Fairness Act of 2005 ("CAFA") provides for removal to federal court of state class actions that satisfy the statute's minimal diversity and class size requirements and have more than $5 million in controversy. See 28 U.S.C. §§ 1332(d), 1453. This case requires us to address for the first time the burden on a removing defendant to establish the amount in controversy under CAFA.

We hold that at least where the complaint does not contain specific damage allegations, the removing defendant must show a reasonable probability that the amount in controversy exceeds $5 million. This test uses different nomenclature from, but we believe is substantively the same as, the standards adopted by several circuits. Here, defendant failed to meet this burden, in part, because the plaintiffs' class allegations were not yet fully developed at the time of removal.

We affirm the district court's order remanding the case to state court without prejudice to the possibility that defendant may later seek removal to federal court as the state litigation progresses.

I.

In this case, the underlying dispute involves the refunding of premiums for credit insurance policies purchased in conjunction with loans to automobile buyers. Lenders who finance automobile purchases sometimes require the borrower to have life and disability insurance naming the lender as the beneficiary. This arrangement guarantees that the loan is paid back even if the borrower is injured or dies. This type of insurance is often sold as a "single premium" policy, meaning that the entire premium is paid up-front. If the borrower pays off the loan early, he may be entitled to a refund of the unearned portion of the premium — the part allocated to pay for coverage during the remaining policy period — under either the terms of the insurance contract or a state's consumer protection laws. The complaint in this case initially involved only automobile purchasers in New Hampshire, which has such a statute. See N.H.Rev.Stat. Ann. § 361-A:7(IV-a). Defendant Guarantee Trust Life Insurance Company ("GTL") sold single premium credit insurance policies to automobile purchasers in New Hampshire and forty other states through dealerships and their associated financing companies.

On June 18, 2004, Frederick Amoche and Jon Valliere sued GTL in New Hampshire state court, alleging that GTL owed them refunds of the unearned portions of their credit insurance premiums. They sought to represent a class of New Hampshire consumers who had obtained credit insurance through GTL in conjunction with an automobile loan, paid off the loan early, and had not been refunded the unearned portion of the prepaid premium. The complaint requested money damages under a theory of breach of contract and breach of the implied covenant of good faith and fair dealing, restitution of unearned premiums, and various forms of equitable relief, including an injunction requiring GTL to implement measures to guarantee that it would promptly refund unearned premiums to those who pay off their loans early.

On October 13, 2004, plaintiffs filed a motion for class certification as to their breach of contract claim. They defined the class as:

All persons who were sold GTL single premium credit life and/or credit disability insurance products in connection with their credit purchase of a motor vehicle from a motor vehicle dealer located within New Hampshire and who prepaid their insured loan prior to the maturity date of such credit transaction but did not receive a refund or credit for the unearned portion of the premium prior to the commencement of this lawsuit. Excluded from the class are those who received payment from GTL for death or disability claims and those who are presumptive class members in a lawsuit wherein the claims against GTL have been certified by a New Hampshire state court to proceed on a classwide basis.

This class definition was narrower than the one contained in the original complaint because it excluded those who already had claims pending against GTL in parallel class actions.

On December 17, 2004, plaintiffs filed a second amended complaint that conformed the class allegations to the class definition in the motion to certify and added Diane Dauphinais as a named plaintiff. On September 27, 2005, the state court certified the proposed class of New Hampshire automobile purchasers as to the plaintiffs' breach of contract claim.

Plaintiffs filed a motion for partial summary judgment on May 2, 2005, seeking to establish GTL's liability on their breach of contract claim. GTL filed a cross-motion for summary judgment on October 14, 2005. On May 2, 2006, the state court granted the plaintiffs' motion for partial summary judgment and denied GTL's cross-motion, holding that GTL's failure to refund unearned premiums where the borrower had paid off the automobile loan early violated the express terms of the insurance contract.

Having secured a finding of liability, plaintiffs filed a motion for leave to file a third amended complaint on July 12, 2007. In their proposed third amended complaint, plaintiffs expanded the class definition to include consumers from other states.¹ As to the size of the proposed expanded class, the third amended complaint said:

Counsel has conducted an extensive pre-and post-filing investigation into GTL's single premium credit insurance activities across the country. Plaintiffs' counsel believe, based upon knowledge obtained in this and similar cases, that GTL has issued hundreds of thousands of credit insurance certificates pertaining to motor vehicle loans since 2000. Counsel believe, based on information obtained in this and similar cases, that a substantial percentage of the credit-insured vehicle loans were paid off early and no refunds were made.

And elsewhere, the third amended complaint alleged that GTL had harmed "thousands of class members by failing to refund their unearned premiums on early loan payoffs."

The third amended complaint also stated that "GTL has failed to refund over a million dollars in unearned premiums owed to ... the class members"; it described the individual class members' damages as "less than $1,000" and, based upon similar suits, likely "about $200." Plaintiffs had consistently claimed that this case involved over a million dollars in unearned premium refunds. Indeed, even when the suit involved only a class of New Hampshire automobile purchasers, plaintiffs alleged that "GTL has wrongfully retained well over $1 million in unearned premiums belonging to these Class members."

The state court held a hearing on the plaintiffs' motion for leave to amend on October 4, 2007 and granted the motion on October 15, 2007. The order granting the motion stated that "the plaintiffs seek to expand the class to include consumers from sixteen (16) other states that have enacted consumer protection legislation similar to that of New Hampshire." The order did not specify which sixteen states plaintiffs were considering, and the third amended complaint contained no geographic limitations on the proposed class. GTL received service of the court's order on October 17, 2007.

On October 23, 2007, plaintiffs filed a motion to amend the court's October 15, 2007 order, requesting that the court change the order's statement of the number of states included in the suit. Plaintiffs said:

[T]he order states that the plaintiffs are suing on behalf of 16 other states. Plaintiffs are not locked into that number, but want the Court to amend its order to merely say a range, which would be from 10 to 20 other states. This is not a substantive change, but one that would more accurately reflect a likely national scenario.

Plaintiffs did not say which ten to twenty states they were considering.

On November 15, 2007, before the state court had ruled on the plaintiffs' motion to amend, GTL filed a notice of removal in federal district court, claiming federal jurisdiction under CAFA. GTL argued that it was apparent from the face of the third amended complaint that more than $5 million was at stake in the case, pointing to its allegations that GTL had issued "hundreds of thousands" of policies, that a refund was due for "a substantial percentage" of those policies, and that the individual refund owed was "about $200." GTL argued that if the class contained more than 25,000 people — a fair reading, in its view, of "a substantial percentage" of "hundreds of thousands" — the amount in controversy would exceed $5 million.

Plaintiffs filed a motion to remand on December 5, 2007. They did not challenge the timeliness of GTL's notice of removal or argue that the suit failed to satisfy CAFA's minimal diversity and class size requirements. Instead, they argued that no federal jurisdiction existed under CAFA because less than $5 million was at stake. They claimed that the third amended complaint specified an amount of damages below the jurisdiction minimum because it stated that "GTL has failed to refund over a million dollars in unearned premiums."

Plaintiffs also directly addressed GTL's contention that the third amended complaint described a class containing more than 25,000 members. They argued that even though GTL had issued hundreds of...